Court hands Amazon major e-book victory

Chalk up a colossal victory for Amazon in its ongoing war against Apple for control of pricing in the e-books market.

In a ruling that shakes up the entire publishing industry, U.S. District Judge Denise Cote on Thursday approved the Justice Department’s settlement with a trio of publishers accused of conspiring with Apple to jack up digital book prices.

Text Size

-

+

reset

With her ruling, Cote set in motion the termination of contracts between Apple and three of the nation’s largest publishers — HarperCollins, Hachette and Simon & Schuster — and placed control of pricing for e-books back in the hands of retailers, particularly Amazon.

“This is huge for Amazon,” said Paul Aiken, executive director of the Authors Guild, which opposed the settlement out of fear that Amazon’s pricing structure could put brick-and-mortar book stores out of business. “And a big blow for Apple.”

The settlement approved Thursday requires the publishers not only to kill their contracts with Apple within a week but also to end contracts with any e-book retailers that specifically place restrictions on a retailer’s ability to set prices on e-books. And the settlement also bars the publishers from granting a retailer “most favored nation” status for five years.

Amazon, which released a new version of its Kindle e-reader Thursday, is set to be the biggest winner. The company’s dominance — it once controlled 90 percent of the e-books market and currently has an estimated 60 percent share — was what spurred Apple and a gang of publishers to develop a new business model for selling digital books, the Justice Department has alleged.

And that’s what gave rise in 2010 to the so-called agency model — a pricing structure government officials allege is intended to force Amazon to abandon its tactic of selling e-books for its Kindle e-reader on the cheap.

Publishers viewed Amazon’s practice of drastically discounting digital best-sellers as a threat to hardcover book sales and brick-and-mortar businesses, according to court filings in the case. In contrast to Amazon’s pricing structure, the agency model allowed for publishers to set the prices and split the proceeds with the retailer, while Apple received a 30 percent commission on each sale.

But the DOJ sued Apple and the five publishers in April over the agency model, alleging they had conspired to fix prices for e-books.

HarperCollins, Hachette and Simon & Schuster agreed to settle the case the day it was publicly announced and suspend use of the agency model for two years. Under the settlement, the three publishers will now have to negotiate new contracts with e-book retailers, including Amazon, Barnes & Noble and Apple.